The reality of under-insurance and a helpful new toolkit

Here’s a sobering thought: most of us don’t have adequate insurance to deal with the likes of potential house fires, storm damage or water damage to our homes.

In fact, about 80 per cent of Victorians are under-insured, according to Emergency Management Victoria – meaning the insurance policy taken out for our home, for example, is for an amount less than the cost of recovery.

That’s particularly worrying given Victoria has one of the highest frequencies of bushfires in the world, along with our fair share of storms and floods: in the past decade alone, Victoria has experienced 67 major weather events.

The fallout? Here is one example: when a severe weather event hits, it can trigger electrical outages causing appliances to short-circuit and subsequently, malfunction. In this instance, a supply outage would not usually attract compensation.

So why is the message to insure appropriately not getting through? The under-insurance trend is being driven, says Mark Morand, Head of Microenterprise and Insurance at Good Shepherd Microfinance, by a lack of understanding, an ‘it won’t happen to me’ attitude or, especially for low-income households, a perception that insurance is too expensive.

Which is why the ‘Insure it, It’s worth it’ toolkit is worth a look. Developed by the Victorian Government in partnership with Good Shepherd Microfinance, it’s tailored to help all Victorians understand the level of insurance needed to bounce back after an emergency. The toolkit also discusses insurance designed specifically to meet the needs of those on low incomes.

Information for both renters and owner-occupiers is also featured in the kit. If you rent, your landlord is responsible for insuring the building, and you as the tenant are responsible for insuring the personal contents of your home. Owner-occupiers are responsible for both. To determine the value of your home contents, the toolkit includes a calculation guide to estimate the amount of contents insurance needed.

Mark recommends immediate action. "Not many of us can afford to replace our home or home contents if we lose it in a catastrophe such as a fire," Mark says, "and the best advice is – know the risks you face so you can prepare for an emergency now."

Those risks can translate into hefty financial and emotional costs.

For instance, the estimated cost of the 2009 Victorian bushfires was $4.4 billion, the 2010/2011 Victorian flood was more than $1.3 billion, and Deloitte Access Economics puts the average total economic cost of natural disasters in Victoria over the past decade at $2.7 billion per annum.

It’s not just individuals who need to be mindful of the financial fallout of natural disasters: businesses are often victims, too, says Mark. "Severe weather events can affect homes and businesses at any time: affected businesses face both the cost of repairs to their buildings, replacement of damaged stock, and loss of income during the recovery phase," he warns.

On top of that, people might think about getting home and contents insurance, but may not consider protecting important documents. "I’ve heard stories of people who, after a catastrophe, can’t recall who they’re insured with," Mark explains. "That’s why the hard-copy booklet [inside the toolkit] includes a perforated cut-out that you can use to record your insurance policy number as a wallet/purse insert. And of course important documents, along with family photos and other items of sentimental value, are often lost as a result of a fire or flood. The booklet provides a handy list of important documents to consider, and some suggestions about how to protect them."

In the immediate aftermath of a natural disaster, when the emotional impact can be extreme, a record of insurance details and instant access to precious documents can make the recovery process that little bit smoother.

Mark has a keen understanding of that. At a recent disaster relief panel discussion in which he participated at the Victorian Financial and Consumer Rights Council Conference, he heard stories from financial counsellors about the long-term emotional and financial outcomes of disasters, and in a worst-case scenario, people can find themselves homeless, with devastating impacts on family.